DCIT, CHENNAI V. Alliance Retreat Private Limited, CHENNAI

ITA 557/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90281 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: M NARAYANAN RETD
• Keywords: Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI .. , , ! '# BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ./ ITA NO. 557/MDS/2013 / ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER M/S. ALLIANCE RETREAT P . LTD., OF INCOME-TAX, V. PLOT NO.A, DOOR NO.36/1, COMPANY CIRCLE-I(1), GANDHI MANDAPAM ROAD, CHENNAI 34. KOTTURPURAM, CHENNAI 600 085. APPELLANT) PAN AAFCA9771N RESPONDENT) / APPELLANT BY : SHRI A.V.SREEKANTH, JCIT / RESPONDENT BY : SHRI M. NARAYANAN (RETD. ADDL.CI T) ! / DATE OF HEARING : 03.02.2015 '# ! / DATE OF PRONOUNCEMENT: 10.04.2015 $ / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER THE APPEAL HAS BEEN FILED BY THE REVENUE IMPUGNI NG THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-II I, CHENNAI DATED 10.12.2012 FOR THE ASSESSMENT YEAR 2009-10. THE REVENUE HAS ASSAILED THE FINDINGS OF CIT(A) IN DEL ETING THE - - ITA 557/ 13 2 DISALLOWANCE OF ` 2,17,08,433/- MADE UNDER SECTION 36(1)(III) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT). 2. THE FACTS OF THE CASE AS EMANATING FROM THE RECO RDS ARE: THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IS EN GAGED IN THE BUSINESS OF REAL ESTATE AND CONSTRUCTION. THE ASSE SSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 AD MITTING LOSS OF ` 34,12,997/- AND OFFERED ` 3,77,879/- AS INCOME U/S.115JB OF THE ACT. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER MADE CERTAIN ADDITIONS IN THE INC OME RETURNED BY THE ASSESSEE INCLUDING DISALLOWANCE OF INTEREST EXPENDITURE U/S 36(1)(III) OF THE ACT. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30.12.201 1, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISS IONER OF INCOME-TAX(APPEALS). THE COMMISSIONER OF INCOME- TAX(APPEALS) ACCEPTED THE SUBMISSIONS OF THE ASSESS EE AND ALLOWED THE APPEAL IN TOTO. NOW, THE REVENUE HAS COME IN APPEAL BEFORE THE TRIBUNAL ASSAILING THE FINDINGS OF THE COMMISSIONER OF INCOME- TAX(APPEALS) WITH RESPECT TO DISALLOWANCE U/S.36(1) (III) OF THE ACT. - - ITA 557/ 13 3 3. SHRI A.V.SREEKANTH, REPRESENTING THE DEPARTMENT, SUBMITTED THAT THE ASSESSEE HAD ADVANCED INTEREST F REE LOANS TO ITS GROUP COMPANIES FROM INTEREST BEARING FUNDS. T HE ASSESSEE HAS NOT BEEN ABLE TO SHOW BUSINESS EXPEDIENCY ON AC COUNT OF WHICH FUNDS TO THE TUNE OF ` 49 CRORES HAVE BEEN ADVANCED AS INTEREST FREE LOAN TO THE GROUP COMPANIES. THE ASS ESSEE HAS BORROWED FUNDS ON WHICH IT HAS PAID INTEREST CHARGE S OF ` 2,86,80,198/-. THE ASSESSEE INSTEAD OF REDUCING IT S INTEREST BURDEN BY REPAYING LOAN AMOUNT HAS DIVERTED FUNDS T O THE GROUP COMPANIES. THE LD. DR FURTHER POINTED OUT THAT THE ASSESSEE HAS ADMITTED THAT IT HAS RESTRUCTURED LOAN AS THE A SSESSEE- COMPANY WAS NOT ABLE TO PAY THE INTEREST ON TERM LO AN. THE LD. DR VEHEMENTLY DEFENDED THE ASSESSMENT ORDER AND PRA YED FOR SETTING ASIDE THE FINDINGS OF THE COMMISSIONER OF I NCOME- TAX(APPEALS) ON THIS ISSUE. 4. CONTROVERTING THE SUBMISSIONS MADE BY THE REVENU E, SHRI M. NARAYANAN, APPEARING ON BEHALF OF THE ASSES SEE, STRONGLY SUPPORTED THE FINDINGS OF THE COMMISSIONER OF INCOME- TAX(APPEALS). THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS. - - ITA 557/ 13 4 THEREFORE, THERE IS NO QUESTION OF DIVERSION OF INT EREST BEARING FUNDS FOR ADVANCING TO GROUP COMPANIES. THE LD. AR FURTHER CONTENDED THAT THE ADVANCES WERE GIVEN TO SISTER CO NCERNS ON ACCOUNT OF COMMERCIAL EXPEDIENCY. THE REVENUE HAS NOT BEEN ABLE TO ESTABLISH ANY NEXUS BETWEEN THE AMOUNT LENT TO SISTER CONCERNS AND INTEREST BEARING FUNDS. THE LOAN AMOU NT WAS UTILIZED FOR PURCHASE OF LAND AND DEVELOPMENT AND C ONSTRUCTION OF PROJECT VILLAS. THE LD. AR PRAYED FOR DISMISSIN G THE APPEAL OF THE REVENUE. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSING OFFICER MADE DISALLOWANCE U/S.36(1)(III) OF THE ACT ON ACCOUNT OF DIVERSION O F INTEREST BEARING BORROWED FUNDS TO GROUP COMPANIES. THE COMMISSIONE R OF INCOME-TAX(APPEALS) AFTER APPRECIATING THE FACTS OF THE CASE, PLACING RELIANCE ON THE DECISIONS RENDERED IN THE C ASE OF CIT V. RELIANCE UTILITIES AND POWER LTD., REPORTED AS 313 ITR 340 (BOM.) ACCEPTED THE CLAIM OF THE ASSESSEE. - - ITA 557/ 13 5 6. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS T AKEN A TERM LOAN OF ` 20,03,78,000/- AND HAS PAID INTEREST TO THE TUNE OF ` 2,86,80,918/- THEREON. THE COMMISSIONER OF INCOME- TAX(APPEALS) IN THE IMPUGNED ORDER HAS OBSERVED THA T THE ASSESSEE HAS ESTABLISHED THAT INTEREST BEARING TERM LOAN WAS DIRECTLY UTILIZED FOR ACQUISITION OF LAND AND MEETI NG THE COST OF CONSTRUCTION. HE FURTHER OBSERVED THAT THE ASSESSI NG OFFICER HAS FAILED TO ESTABLISH THAT THE LOAN AMOUNT ADVANCED T O SISTER CONCERNS IS OUT OF INTEREST BEARING FUNDS ONLY. TH E ASSESSEE HAS GIVEN THE DETAILS OF THE BORROWINGS AND THE UTILIZA TION OF SAME. THE ASSESSEE HAS ALSO FURNISHED THE DETAILS OF INTE REST FREE FUNDS AVAILABLE WITH THE ASSESSEE DURING THE RELEVA NT PERIOD. A PERUSAL OF THE SAME SHOWS THAT A SUM OF ` 17 CRORES SANCTIONED AS TERM LOAN WAS DIRECTLY DISBURSED BY THE BANK ON BEHALF OF ASSESSEE TO M/S. SAI ENTERPRISES ON DIFFERENT DATES FOR PURCHASE OF LAND. ANOTHER SUM OF ` 2,54,00,000/- WAS DISBURSED BY THE BANK AS TERM LOAN, THAT WAS UTILIZED BY THE ASSESSE E FOR MAKING PAYMENTS TO M/S. SOORYA DEVELOPERS ( ` 1,48,46,000/-) AND M/S. MEGHANA DEVELOPERS (( ` 1,06,04,000/-) FOR DEVELOPMENT AND CONSTRUCTION OF VILLAS. THE ASSESSEE HAS BEEN ABLE TO EXPLAIN - - ITA 557/ 13 6 UTILIZATION OF ENTIRE SECURED LOAN OF ` 20 CRORES FOR BUSINESS PURPOSES. THE ASSESSEE HAS ALSO GIVEN THE DETAILS OF INTEREST FREE FUNDS, AMOUNTING TO ` 82.47 CRORES. THE DETAILS OF INTEREST FREE FUNDS AND UTILIZATION OF ENTIRE BORROWED FUNDS FOR BUSINESS OF THE ASSESSEE HAVE NOT BEEN CONTROVERTED BY THE REVE NUE. 7. AS FAR AS, THE ARGUMENT OF REVENUE WITH RESPECT TO UTILIZATION OF OWN FUNDS FOR THE REPAYMENT OF LOAN INSTEAD OF ADVANCING TO GROUP COMPANIES IS CONCERNED, WE ARE O F THE CONSIDERED OPINION THAT THE REVENUE SHOULD NOT STEP INTO THE SHOES OF ASSESSEE. THE REVENUE CANNOT DICTATE THE A SSESSEE TO CONDUCT ITS BUSINESS AFFAIRS IN A PARTICULAR MANNER . AS LONG AS THE ASSESSEE IS CONDUCTING ITS BUSINESS AFFAIRS WIT HIN THE LEGAL FRAMEWORK, IT IS AT LIBERTY TO MANAGE AND UTILIZE I TS RESOURCES ACCORDING TO ITS OWN PRUDENCE AND SKILL. WE FIND N O INFIRMITY IN THE IMPUGNED ORDER. THE ORDER OF THE COMMISSIONER OF INCOME- TAX(APPEALS) IS CONFIRMED AND THE APPEAL OF THE REV ENUE IS DISMISSED BEING DEVOID OF MERIT. - - ITA 557/ 13 7 ORDER PRONOUNCED ON FRIDAY, THE 10 TH OF APRIL, 2015 AT CHENNAI. SD/- SD/- ( $%%$& ) ( ' &( )%*%)+,-+.+/( 01-+,23+,456( ! 7&2889:/4+/4;<=><. ? 7& /JUDICIAL MEMBER @? /CHENNAI, A7 /DATED, THE 10 TH APRIL, 2015. MPO* 7B C'D' /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. E( /CIT(A) 4. E /CIT 5. 'FG H /DR 6. GIJ /GF.